Maximising your mortgage by refinance
Refinancing your mortgage can make a big difference in your finances. When the lock-in period of your mortgage ends, think about refinancing. Most banks charge a penalty if your repay within 2 years for floating rate and 3 years for fixed rate loans. Check your mortgage documents if you are unsure.
Refinancing can help you
Lower your monthly repayment
Usually after the lock-in period, your interest rate will start to increase. To lower your monthly repayment, you can refinance to another bank with a better package or reprice with your existing bank.
Zoe has a $300,000 mortgage at 4% p.a over 20 years. She enters these numbers into the refinance calculator. If she refinances her loan to 1.20% p.a. Her new monthly payment will be $1406. This is $412 less than her existing one.
Lower your interest rate
Refinancing to a home loan with a lower mortgage can immediately reduce your monthly payment and the amount of interest you pay.
Pay off your mortgage faster
Your income has since improved when you first took out the mortgage. How about refinancing your loan from 25 years to 20 years? Doing so will increase your home equity and reduce the interest.
Change your variable interest package to a fixed interest mortgage
Perhaps the interest rate of your variable interest package has gone up every adjustment period and your are concerned the trend will continue. Why not refinance your loan to a fixed interest package? A fixed interest package will prevent you from being affected by rising interest rates and allow you to budget your payment with certainty.
Cash out on your home equity (Not applicable to HDB flats)
If you need cash to pay for your kids university expense, renovation, start a business or consolidate debt, or for any other reason. You can consider a home equity loan. This involves in getting a new mortgage in additional to what your currently owe. You must use cash to service the home equity loan, CPF is not allowed.
How do you know you are ready to refinance?
moneyiq.sg’s refinance calculator is created to help you compare your current mortgage with available packages in the market. You can use it to find out if refinancing helps you to lower your monthly payment, pay off your loan faster and compare the difference on a fixed package.